The stock value can still rise. Apple didn't pay dividends for a large part of its existence, yet especially after the year 2000 it would have been a great stock to own.
> Apple's long stretch of not paying any dividends reflected Jobs' opposition to them. During Jobs' second tenure at Apple from 1997 to 2012, the tech giant didn't pay a single dividend, even as its cash hoard ballooned to over $50 billion in 2011.
"The cash in the bank gives us tremendous security and flexibility," Jobs said in 2010.
But by 2012, and after Jobs had passed the reigns to Tim Cook, Apple finally reinitiated its dividend, making it the company's first dividend since 1995. The combination of Jobs' passing in 2011 and a cash hoard exceeding $100 billion in 2012 marked the beginning of a new era for Apple. Overnight, Apple became a formidable dividend stock -- and it looks like it's going to stay this way.
And the underlying economic reason for Apple's shares to go up when it wasn't paying a dividend is that as Apple accumulated cash and became more profitable, the chances that it would pay a fat dividend someday (even if not in the near future) kept going up.
If companies didn't ever pay a dividend or buyback shares, the whole thing would be a ponzi scheme. The company takes money in an IPO, and then investors shuffle money among themselves to make it look like they have a profit, but it would collapse if people want to cash out. When companies eventually distribute profit to investors however, it becomes possible for cash to leave the system without all the paper value disappearing into thin air.
Berkshire Hathaway has only paid 1 dividend ever (in 1967). Buffett can invest that money better than I can, so why bother taking money out of the company.
I cannot for the life of me understand why’d someone who’s not an institutional investor (say Buffet) would want to own stock in a company that doesn’t pay dividends. It’s basically buying a vanity plate and hoping someone else will buy it for more down the road.
I've had this question in the past and I found this post helpful:
> The fundamental answer to all of this is that the profits must be shared with shareholders at some point. This is what terminates the infinite regression. If a company believes that they can retain their earned profits to further grow and generate even more profits, they will do so. However if a company continues to grow and do well, eventually they will accumulate so much cash in the bank that they can’t find good use for all of it. At this point they will have to pay it out to shareholders through a dividend or stock buyback. If they refuse to, at some point the shareholders will band together and vote for new management that will pay it out.
So even if the company does not pay dividends currently (reinvesting it instead), there will eventually come a point at which their growth flatlines, and they will start paying out dividends. If the market is rational, it will have forecasted this flatlining and the stock price will have taken that into account.
I used to have some trouble with this one but if you think about it it's the same as "why would anyone want a dollar, it's just a piece of paper". The answer is that for literally anything, if you can exchange the thing for value, then it effectively has that value.
(Or alternatively, you say that dollars are also vanity plates, and are as worthless as stocks.)
Exactly. So, give breaks to companies that cannot pay dividends, because the ones that do are the ones who are obviously signaling that they are fine.
This isn't some slam against paying dividends, though. I do agree with you. I am fascinated at companies like Snapchat whose shares command no voting power and do not pay a dividend.
However, as far as signals go, "here, we are so well capitalized that we think you can invest this money better than we can" is pretty strongly saying your company is in good financial shape.
Commodities and precious metals don't pay dividends, yet people invest in them with the expectation that the value will rise so they can sell them later.
Do you know a priori that none of these companies will ever pay dividends or buy back?
So many facile understandings of pricing in these comments - there is a real mechanism that ties profits to pricing, it's not just "sell when it goes up"
2. Give people work, so that they can afford products.
Especially essential ones.
Everything else is just (potentially useful) junk capitalism added on top of it. So even if the concept
of dividends would be forbidden many thinks would still go on like before, companies would still exist and make sense. Just the stock marked would probably be gone. Maybe that wouldn't be so bad IMHO.
What’s the point of a company that never pays a dividend.